Year-End: How A Growing Global Mandate And Franchise Fever Led To Movie Studio Tsuris

Considering that global movie ticket sales reached precedent levels after a particularly robust holiday period and a mostly sizzling summer, 2013 was one of the most turbulent years I can remember in the executive suites of major studios. Studios were overhauled all over town to better compete in an arena that is more of a global pursuit than ever, with victory belonging to whoever can build and maintain the most franchises.

Purists will decry the fact that Hollywood’s brightest minds are mostly focused on repackaging derivative concepts for maximum global grosses, but evidence of the rewards are right there in the gross charts: Six of the top seven biggest films were sequels that provided the kind of results that keep studio conglomerate parents happy, keep studio chiefs employed, and slate co-financiers coming back for more. Sure, studios will still get involved with awards-season prestige films like The Wolf Of Wall Street, American Hustle and 12 Years A Slave, but often only when someone else pays to make them. This franchise fever pushed costs of blockbusters to ridiculously high levels, and left top execs and producers explaining, and sometimes packing, when some badly misfired. Add that to internal power struggles at places like Universal and Warner Bros, and you needed a scorecard to keep up with the executive changes — which came fast and furious, especially after the brutal summer blockbuster season. Among them:

*Universal fired film chairman Adam Fogelson in a move that surprised him along with everyone else in town but Ron Meyer and Donna Langley, with whom he engaged in a quiet power struggle. Fogelson was blindsided by the result, coming hours after he presided over the Toronto premiere of Rush. The Comcast-orchestrated move that put Jeff Shell in charge of filmed entertainment after he did well running NBCUniversal’s international operations. Meyer was upped to vice chairman of NBCUniversal and Langley as sole Universal Films chairman and picture picker. Even though the studio placed third in market share and Despicable Me 2 could become the studio’s biggest-ever box office hit when it plays in China, Universal also flubbed franchise launch attempts like R.I.P.D. and 47 Ronin, and Kick-Ass 2 proved that once was enough. Universal has sequels to Jurassic Park, The Mummy and Ted coming, and a new salty adult franchise in Fifty Shades Of Grey for 2015. Thomas Tull’s Legendary Pictures moved in to hatch pictures and co-fi Universal titles like Jurassic World, hedging the studio’s bets as it moves forward. Langley’s biggest challenge has been retooling the studio’s most lucrative franchise, Fast & Furious, which was halfway completed when star Paul Walker died tragically in a fiery car crash. Right after Fogelson was ousted, longtime Focus Features chief James Schamus was dismissed just as suddenly. He was replaced by Peter Schlessel, the whip-smart former Sony dealmaker who’d been running FilmDistrict and who clearly will be charged with broadening the highbrow Focus slate to include more low-risk high-return genre films like the FilmDistrict hit Insidious. Schamus’s co-chairman, Andrew Karpen, declined to relocate and stay on, dramatically changing the complexion of that prestige company.

*The final shoe dropped after Warner Bros gave the top job to Kevin Tsujihara instead of Warner Bros movie chief Jeff Robinov. At a time when Robinov should have been taking victory laps after his bets on filmmakers paid off so well with Ben Affleck’s Argo, Baz Luhrmann’s The Great Gatsby, Zack Snyder’s Man Of Steel and Alfonso Cuaron’s Gravity, Robinov instead left in a frosty exit to form his own moneyed film venture. This, and the equally tempestuous exit of Legendary’s Tull after a lucrative franchise-fueled run, left Robinov’s successors Greg Silverman and Sue Kroll under big pressure to assert themselves to find new franchises. The studio re-upped Village Roadshow Pictures and replaced Legendary with James Packer, Brett Ratner and Steven Mnuchin’s RatPac Dune in a slate co-financing deal that will spread $450 million or more over 75 films. While Warner Bros brass tired of Tull imposing his creative will and cherry-picking Warner Bros titles to co-fi, RatPac Dune will not do that, and I heard the studio was able to exclude certain plum titles from the arrangement. But Warner Bros also gifted RatPac Dune with a co-fi stake in Gravity after it was completed, creating a big windfall for a fledgling venture. It’s ironic given nobody in Hollywood but Robinov seemed to want to make that movie — an expensive auteur effort that has zero sequel potential. One challenge for the new team at Warner Bros: keeping Robinov from peeling away the directors he empowered, from Christopher Nolan to Affleck, Snyder, Luhrmann, The Hangover‘s Todd Phillips and Cuaron to make movies at the new company he and Graham King are expected to launch at Sony. Silverman is respected and Kroll is regarded as arguably the best marketer in town and the studio’s global distribution and marketing operation is as good as there is, but the pressure’s on even though Warner Bros topped other studios in market share. It also has what seems like a strong year with franchise launches in Godzilla and LEGO, another installment of 300 (so what if everybody died in the original?), and a Hobbit finale. Beyond Hobbit, New Line continues to do its part on the franchise front, hatching a Horrible Bosses sequel for 2014 and gearing up another installment of its sleeper 2013 road trip comedy We’re The Millers.

*After two costly summer misfires in After Earth and White House Down, a lackluster Smurfs sequel that fizzled the franchise, and disappointing returns on the Matt Damon-starrer Elysium, Sony Pictures chairman Amy Pascal found herself in the cross-hairs of minority activist shareholder Daniel Loeb. The result: seismic changes in its executive structure and game plan moving forward. The studio dropped marketing head Marc Weinstock, corporate PR chief Steve Elzer and home entertainment chief David Bishop, and then added former New Line president-turned Fifty Shades Of Grey producer Michael De Luca to share president of production duties with Hannah Minghella. The studio vowed heading into its fall investor meetings that it would cut $250 million in costs through 2016, and make fewer movies in 2014 and pour the money into TV. I keep hearing that was temporary window dressing, and after adding former Fox chief Tom Rothman to revive TriStar, which creates another buyer on a lot full of them, Sony will continue to try and create franchises to go along with its Spider-Man and 007 stalwarts. Sony secured a big slate co-fi investment from John LaViolette and Joseph Singer’s Blue Anchor that begins with George Clooney’s The Monuments Men. And then there is the prospect of the venture by Robinov/King which would give Sony huge movies to release and gain market share and bragging rights, without actually having to fund them if they don’t want to. If 22 Jump Street and especially The Amazing Spider-Man 2 hit as well as is hoped, some of that pressure could be alleviated as the studio presses ahead with reboots of past franchise successes Ghostbusters and Men In Black.

*While Disney had a stellar year with 2013’s biggest grosser in Marvel’s Iron Man 3, and hatched new franchises in Monsters University, Frozen and Oz The Great And Powerful, the studio ended a long relationship with tenured hitmaker Jerry Bruckheimer after their collaboration on the Johnny Depp-starrer The Lone Ranger cost way too much money and failed to launch a franchise. Bruckheimer didn’t fit Disney’s clearly defined reliance on Marvel and Pixar and Disney’s own animation produce. It proved so successful last year it could be emulated by other studios, even if the studio spends so much energy trying to squeeze new juice out of tired Star Wars and Indiana Jones franchises.

*One year after the ouster of Tom Rothman that left Jim Gianopulos a solo act in running the studio, Fox removed domestic marketing chief Oren Aviv and watched Tony Sella follow him out the door after Gianopulos restructured the studio’s marketing operations into a worldwide unit to be headed by his offshore guys Paul Hanneman and Tomas Jegeus. It was a clear recognition that for a major studio like Fox, the game is global. Fox briefly considered itself as a landing place for Robinov, but Gianopulos didn’t want another equal partner and his president, Emma Watts, has done her part to help rehabilitate the studio into a place for good filmmakers to work. Still, it was a rough year for Fox franchises: the stylish The Wolverine didn’t perform as strongly as hoped; A Good Day To Die Hard was so unsatisfying it might have killed one of Hollywood’s most indestructible franchises; and Percy Jackson: Sea Of Monsters was not a success. Fox should fare better in 2014 with X-Men: Days Of Future Past, Dawn Of The Planet Of The Apes and Night At The Museum 3 all looking like big hits. Fox also cemented its franchise future with James Cameron, committing to an unprecedented investment of as much as $750 million in production financing for three more installments of Avatar, the biggest-grossing film in history.

*While Paramount took a victory lap in a New York Times article that seemed to laud a major studio for not making a lot of movies (remember that World War Z and G.I. Joe: Retaliation were pulled out of earlier release slots to be overhauled), the studio had the least amount of executive turnover in 2013. That doesn’t mean it didn’t struggle with its own franchises. The management team deserves praise for recognizing and spending the time and money to fix WWZ and G.I. Joe, but why did it take them so long to recognize problems that left both films well over budget and struggling to turn any kind of profit? There have been rumors of similar budget challenges on the upcoming Noah and the Teenage Mutant Ninja Turtles reboot. Its other franchise bets were mixed; for all the tireless promotion that Will Ferrell did for Anchorman 2, the film isn’t the smash the studio hoped it would be; the Jackass spinoff Bad Grandpa was an unqualified success but seems like a one-off; the irreverent Hansel & Gretel: Witch Hunters was a surprise overseas hit that could develop into a strong franchise as it is sequelized; Jack Reacher did well enough to warrant another; and Star Trek grew its global gross enough to warrant another. Franchise fever hits Paramount in a big way next year, with the rebirth of Jack Ryan, another Paranormal Activity and Transformers: Age Of Extinction. Further down the line is another Mission: Impossible and at least two final installments to resolve The Terminator storyline, with Paramount financing with David Ellison’s Skydance and Megan Ellison’s Annapurna. Some feel that Paramount has to make more movies if it wants to be regarded as a major; its market share is well below Lionsgate, which probably should be called a major by now and which, flush with the grosses of its Hunger Games sequel, takes a stab at another with Divergent. Paramount saw the year end with the exit of its WWZ star Brad Pitt and his Plan B banner, and it’s unclear the future of JJ Abrams Bad Robot as he is focused on Disney’s Star Wars reboot. But the studio gets a proven hitmaker in Bruckheimer, and while he and the lot’s other most prolific producer Lorenzo di Bonaventura might clash as they chase the same popcorn pic audience, Bruckheimer can help Paramount fatten its output, starting with Beverly Hills Cop and Top Gun sequels.

Why are studios even more focused on franchises, which means studio-funded gems like Life Of Pi, Nebraska and Gravity are just happy accidents when they get made? Despite their high costs, franchises are a safer bet than anything else, and when they pay off, it’s huge and growing bigger. Domestic studio receipts account for about 33% of overall theatrical revenues, and considering that North America accounts for just 1/20th of the world’s population, and that theatrical expansion is booming in countries like China, overseas business will only become more important than it is now. Catering specifically to all those cultures is impossible, but those audiences seem to want franchises, and the bigger and louder the better. Already, it is not uncommon to see big releases open on 10,000 screens around the world while landing on 4000 screens here. Appetite is increasing in foreign ancillary platforms from television to VOD. One financier told me that over the past decade, sequels had an average total cash on cash return of 1.46, while every other film that cost $25 million or higher returned 1.16. That will only grow, I’m told. Despite the high number of overpriced franchises that failed to get off the ground in 2013, sequels consistently show a higher return on investment than one-off pictures. Franchises are the true currency of the movie business.

Where does that leave the rest of the business? Here are some of the trends to look for.

Out: A Writers Strike In 2014.

Nobody even mentions that possibility of a labor stoppage when the WGA contract expires, and not only because the DGA got its new deal out of the way. Said one top dealmaker: “Get even the most militant writer drunk and they’ll admit they screwed up last time. Whatever digital gains were made were not worth writers watching their quotes get tossed out the window and replaced by take-it-or leave-it one-step offers, and all the other ways they have been beaten down since then.” The saving grace for many scribes has been the uptick in TV series, including high quality shows on pay and basic cable that are helping feature scribes survive.

There were several million-dollar spec deals toward the end of 2013 and a healthy deal volume, and that should continue into 2014. The reason: studios cut back so far on development and producer deals that they need product to make so they can fill pipelines in 2015 and beyond.

Out: Hiring video/commercial/short film helmers to make directing debut on films costing north of $100 million.

Just because they can crush a 30-second spot or three-minute video doesn’t mean feature newcomers are ready for the logistic and creative challenges of a giant production. Films by first-timers often go over budget, as evidenced by the most recent calamity, 47 Ronin. Carl Rinsch was as highly touted as any first timer; this is the guy who was set to direct the Alien prequel until Ridley Scott decided he wanted to revisit his classic franchise. The estimated $175 million Universal lost on this film is the biggest loser on a first-time outing since Andrew Stanton’s live-action debut John Carter. It certainly makes sense to start these potential David Fincher-types on a smaller canvas and let them have a victory before stepping up to larger efforts.

In: Hiring offshore filmmakers to make big films.

Disney’s decision to set Joachim Ronning and Espen Sandberg to helm the fifth installment of Pirates Of The Caribbean seemed a surprise, but that duo proved that it could do a lot with a little on the logistically challenged Kon-Tiki. The Deep’s Baltasar Kormakur or Bullhead’s Michael R. Roskam are among those making big studio films after home country successes. I’m eager to see what opportunities await Russian helmer Fedor Bondarchuk after the remarkable success that his WWII epic Stalingrad had in Russia and China. I met him recently when Bondarchuk came to Hollywood. He’ll have to work on his English, but he’s a bona fide brand in territories coveted by Hollywood studios. Stalingrad is an unabashedly patriotic tribute to the bravery of Russian soldiers as they battled the Nazis in WWII (the Russians are usually gruff and cold in American-made movies from that war), and Bondarchuk framed a touching story around compelling battle scenes staged on the ground and not in a VFX house. That’s the kind of guy who gets a big Hollywood feature job in today’s global-minded market place.

They used to get dismissed as vanity shingles, but the production companies of several big stars generated worthy product in 2013. Pitt’s Plan B launched the biggest-grossing film in his career with World War Z, as well as 12 Years A Slave, and he should become more prolific in its move from Paramount to New Regency. Leonardo DiCaprio’s Appian Way generated Wolf Of Wall Street, which is arguably the best performance in a career full of great star turns; Ben Affleck (with Appian Way) crafted his next star/writer/director vehicle, an adaptation of Dennis Lehane’s Live By Night; George Clooney’s Smokehouse crafted his next film Monuments Men, and this year will also see Robert Downey Jr and Susan Downey’s shingle come out with The Judge, the first big star vehicle for Warner Bros that Team Downey hatched from scratch. Producing pacts for star-driven companies came in vogue when studios did everything to curry favor with first-dollar gross players when they ruled the screens. Many of them fell by the wayside because so much money was wasted on development that didn’t result in make-able films. Still, a star’s company that actually handcrafts vehicles for them can be valuable; while his Appian Way has evolved into a prolific producer, DiCaprio said he launched the company for selfish reasons. “I set my entire production company up in order to find material that not only was interesting and out of the box from an actor’s perspective, but that could be developed that way from the original source material,” he told me recently. “A lot of times, I’d gone through the process of getting a great book or finding a great story, and then too many people get their hands on it and it turns into something entirely different. It is very difficult to reverse that process.” Now, it is ironic he made Wolf for Red Granite with Paramount distributing (Warner Bros dropped out long ago) and the results were less than stellar on Will Smith’s After Earth and some of Adam Sandler’s recent films. But this is a trend worth keeping an eye on.

Get ready for an onslaught of Biblical epics, starting with the Darren Aronofsky-directed Noah, and continuing with Ridley Scott’s Moses pic Exodus, with films like Ben-Hur and others percolating. The small screen success of The Bible hinted at the huge audience potential, and we’ll soon find out if they’ll be willing to pay to see these films. From The Ten Commandments to The Passion Of The Christ, there is every indication that they will show up for a well-made Bible-based tale.

Out: 3D.

I’ll be the first to admit that World War Z was more fun in 3D, and I couldn’t imagine seeing Gravity, Life Of Pi or Avatar any other way than top quality immersive 3D. But most films I find preferable in 2D form, and while offshore audiences seem to appreciate 3D conversions, in the U.S. they’ve never really supplanted the feeling they are gimmicky revenue grabs more than anything else.

Studios are rethinking the mind-set of aiming films mainly at the male Clearasil demo. While the boys are distracted, adults proved they will turn out for a good film. The success of adult-themed films from Lee Daniels’ The Butler to 12 Years A Slave to American Hustle and The Best Man Holiday has been something of a wake-up call, dealmakers tell me. As for the latter two, call them urban films if you like, but when low-cost films like these cross over, you mint money even if most of it comes from domestic receipts. The next to watch will be the Ice Cube-Kevin Hart buddy cop comedy Ride Along, which already has a sequel percolating as Universal looks to bolster its portfolio with urban-themed films that are safe bets because of their low costs and reliable core audiences. How else to explain why Tyler Perry is still working when his films are routinely panned?

Out: $200 Million Budget Films.

This comes with an asterisk. You’ll see it on established franchises like Avatar, Pirates Of The Caribbean, and superhero movies. But not on attempts to launch franchises. World War Z and Pacific Rim did just enough to put sequels in development, and each was the kind of thrill ride summer audiences savor. But their high costs became big hurdles to overcome, and those financial stakes became a major part of the play by play for each movie, and it colored how audiences regarded the films they saw onscreen. It might be hard to remember now, but World War Z’s advance blitz of publicity made you think it was going to be the biggest surefire flop of summer, right up until the film delivered onscreen. Films don’t catch on for all different reasons, but the preoccupation with bad advance buzz is a growing factor. When I recently asked Bruckheimer why The Lone Ranger didn’t hatch a franchise, he cited as one contributor the advance publicity the film got even before shooting, when Disney unplugged the picture until its $250 million budget was cut to $215 million. If you look at Hollywood’s most time-tested franchises, from Beverly Hills Cop to Top Gun, The Terminator and Bad Boys, most were modest-budgeted originals that caught on with audiences at theaters and then on video, launching stars and building sequel momentum. Franchise creation has become more perilous as the landscape of 2013 failures from White House Down to R.I.P.D. to 47 Ronin attest. The biggest challenge for studios with franchise fever is to better manage the costs of these because these failures can become unsurvivable.